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Robinhood’s crypto unit has been fined $30 million by New York’s top financial regulator

The New York State Department of Financial Services fined the cryptocurrency trading unit of online broker Robinhood Markets Inc. for alleged violations of anti-money laundering and cybersecurity regulations in the department’s first crypto enforcement action.

The New York State Financial Services Authority said Tuesday that Robinhood Crypto LLC has failed to maintain and certify compliant anti-money laundering and cybersecurity programs. As part of the consent order, Robinhood must also retain an independent consultant to assess NYDFS compliance and remedial actions.

NYDFS said it found significant errors in a regulatory review and subsequent enforcement investigation into Robinhood. The failures, the regulator said, stemmed from failings in the company’s governance and oversight of its compliance programs. These include a failure to promote and maintain a compliance culture and to allocate adequate resources to programs, especially as the company grew rapidly, which exacerbated the problems.

Robinhood, which indicated in its most recent quarterly filing that it had approximately 15.9 million monthly active users as of the end of March, first publicly disclosed the research and comparison with the NYDFS a year ago in filings with the Securities and Exchange Commission. The company initially expected a fine of at least $10 million, later increasing it to $30 million.

NYDFS said Robinhood’s Bank Secrecy Act and anti-money laundering compliance program were understaffed and failed to make the timely transition from a manual transaction monitoring system appropriate for the company’s size, transaction volume and customer profiles. Robinhood’s cybersecurity program also failed to address the company’s operational risks, and its policies failed to comply with cybersecurity and virtual currency regulator regulations, NYDFS said.

Robinhood also failed to meet certain consumer protection requirements by not having a dedicated phone number for receiving consumer complaints on its website, NYDFS said.

Adrienne Harris, Superintendent of the New York State Department of Financial Services


Christopher Goodney/Bloomberg News

“We have made significant strides in building industry-leading legal, compliance and cybersecurity programs and will continue to prioritize this work to best serve our customers,” said Cheryl Crumpton, associate general counsel of litigation and regulatory enforcement, in a statement Tuesday. “We remain proud to offer a more accessible, lower-cost platform to buy and sell crypto, and look forward to continuing to grow our business responsibly with new products and services that our customers want.”

The Robinhood settlement was the NYDFS’ first enforcement action in the cryptocurrency sector, which plays a paramount role in financial regulation and enforcement given New York’s role as a financial hub. It also comes as its new superintendent, Adrienne A. Harris, seeks to provide more guidance to the crypto industry and expand the virtual currency regulator’s team.

“DFS will continue to investigate and take action when a licensee violates the law or Departmental regulations that are critical to protecting consumers and ensuring the safety and soundness of institutions,” Ms. Harris said in a statement.

The settlement has been a recent headache for the mobile investment firm that has garnered widespread popularity during the Covid-19 pandemic. Robinhood’s monthly active users in the first quarter fell 25% from last year’s quarterly peak, while revenue fell 47%. The company has shifted its focus from rapid growth to cutting costs, laying off 9% of its workforce earlier this year.

Robinhood is also on a collision course with regulators after SEC Chairman Gary Gensler outlined an overhaul to trading rules in June that could jeopardize some of its business model.

When cryptocurrency lending platform Celsius froze user accounts amid a plunge in ratings, it made waves in the industry and raised questions about what happens to users’ assets when a crypto platform files for bankruptcy. WSJ’s Vicky Ge Huang explained. Photo illustration: Jordan Kranse

write to Mengqi Sun at [email protected]

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Appeared in the August 3, 2022 print edition as “Firm’s Crypto Unit Is Fine $30 Million”.

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